Posts Tagged ‘eurozone’

Today the Eurozone debt crisis is the subject traders and economists have been discussing most. Month by month, forecasters paint an increasingly dark picture of a situation in the EU with a collapse of the union at worst. Greece, France and Italy with its banking crisis may be the first to leave the EU due to extremely high debt levels on the global loan market.

Spain was offered 100 billion euros as a bailout, which is equivalent to 15% of its GDP. However, despite the amount is impressive, it might be insufficient to solve the troubles of the country, even though the economic recession in Spain is far from its culmination. The situations in Spain and Ireland are identical. It should be said though that the size of Ireland’s economy is eight times as less, but it has asked for 65 billion euros.

Greece has been said to be likely to quit the Eurozone, but most experts are sure it will stay. Otherwise, the crisis will totally devour it as the national government will definitely fail to cope with it alone.

As for Spain, the country needs substantial funds to revive its economy, but Germany seems to be unwilling to give it a helping hand. What Angela Merkel proposes is uniting the banking systems, which in fact means creation of a supra-national supervisor with an aim to establish German order and discipline in the banking sector of the Eurozone.

Even though such a scenario is hardly possible to implement now, it would definitely help out the indebted countries and the Eurozone as a whole.

Since the euro is one of the main Forex instruments, it is crucial to know to what extent this estimable currency is influential.

At present, the euro is an official currency for the majority of EU nations. 7 countries out of 27 are even planning to replace their national currency with the euro in 2014-2015. Denmark, Sweden and Great Britain do not seem to be willing to join the euro area so far. There can be various reasons for it, but they are mostly psychological rather than economic.

The euro reaches out far beyond the Eurozone borders. Vatican, Monaco and San Marino concluded formal agreements with the EU to adopt the euro as an official currency. The euro also serves as an official currency in Andorra, Montenegro, the Republic of Kosovo and two British-administered areas on Cyprus, even though they adopted the single European currency unilaterally.

What is more, the euro is used in some countries of Africa and Pacific Island countries.

While Eurozone leaders are desperately trying to breathe new life into Greece’s junk economy plugging the leak with massive loans, the real threat to the euro is swelling in the North. It bears the name of Finland. The point is that the Land of Thousands Lakes expressed readiness to leave the Eurozone in case Spain’s and Italy’s debt crises exacerbate. They say better lost than found, but there is something which makes this saying misfit the situation. The point is that Finland is the only country with the AAA credit rating in the entire euro area. The Finnish economy has been commonly recognized as the most stable and competitive in the world for five years already. Apparently, it goes without saying that Finland would be a painful loss for the currency bloc. However, at a closer look, the stance of the Finnish government does make sense. Finland toils not only for itself, but for at least two other states, if not three. Greece’s cry for help was followed by that of Spain; now Italy is just about to queue up for a bailout. Moreover, eurosceptical Sweden and Norway neighbouring Finland state that a non-euro economy tends to develop faster. In addition, Finland’s main importers and raw material supplies are non-Eurozone countries, so leaving the currency bloc will hardly affect the economy of Finland. What is more, the Finnish government will be able to save the money which is now pouring into the economies of Greece and Spain in exchange for debt obligations of very doubtful liquidity. Finnish Finance Minister Jutta Urpilainen said, “Finland will not hang itself to the euro at any cost and we are prepared for all scenarios”. She also added that Finland will not pay for others. Minister for Foreign Affairs of Finland Erkki Tuomioja announced that the country has a plan to follow in case the euro collapses. It should be reminded that Finland signed a deal on securing collateral in exchange for its commitment to Greece’s second bailout. If saving the euro requires sharing the debt burden, Finland may well impede this scheme. And yet, this scenario seems to be unlikely with the Finnish Parliament growing increasingly determined to exit the euro area. Experts and economic observers have even introduced a new term for it — Fixit (Finland exit). Fixit is much more likely to happen than Grexit (Greece exit). It is not hypotheses or conflicts among Finnish political parties that make the likelihood of Fixit so clear, but real data. According to the IMF, next year the overall Eurozone debt will peak at 91% of GDP, while that of Finland will only equal 53% of GDP, which is the lowest level of debt except for Estonia and Luxembourg. Finland’s contribution to financing the debts of troubled countries is the same as Germany’s support. But being the Eurozone thought leader, the German government knows what it pays for and objectives it pursues, whereas Finland acts more like a benevolent patron backing its poor cousins and getting nothing from them but stocks of barely alive banks. Germany fully understands it and does its best to come to an arrangement with Finland. However, reaching any agreement appears to be a challenge, as Finland needs indemnity such as assets or shares in certain economic sectors of its half-live dependants. There is a risk that the “deal of the century” will span for a really long time, right up to the point when the Netherlands will also feel like joining it, which will not benefit Germany. So, it is highly possible that Germany’s sluggishness will lead to a partial or full Eurozone collapse, rather than to any fruitful arrangement.